Tuesday, March 13, 2012

Bank of Japan Announces 2 trillion yen Enhancement to Loan Program

The Bank of Japan held its interest rate at 0-0.10% and announced 2 trillion yen of enhancements to "the Growth-Supporting Funding Facility" (GSFF) resulting in the GSFF expanding to 5.5 trillion yen. At the Bank of Japan's regular meeting, board member Mr. R. Miyao proposed to increase the amount of the Asset Purchase Program by about 5 trillion yen, but the proposal was defeated by a majority vote. The Bank noted it will continue with "powerful easing" until it judges its new 1 percent inflation goal to be in sight.

The Bank said: "Japan's economy currently confronts the long-term structural challenge of declining trend growth rates amid rapid population aging. Tackling this challenge is crucial for establishing a new basis for economic growth. The goal of overcoming deflation will be achieved through such efforts to strengthen growth potential and via support from the financial side. With this in mind, it is important for business firms, financial institutions, the government, and the central bank each to continue exerting themselves in their respective roles."

The Bank of Japan added another 10 trillion yen to its 65 trillion yen quantitative easing program last month, after it expanded its asset purchase program in October by another 5 trillion yen to 55 trillion yen, and previously announced additions to its quantitative easing program during its August meeting. The Bank had previously changed its asset purchase program in March last year, when it added a further 5 trillion yen to its target.

Banks are a key participant, but as for bond buying there are many different holders of government bonds e.g. mutual funds, pension funds, hedge funds, other govt entities, individuals, and foreign investors. QE can provide more funds for lending but a key benefit is reducing market interest rates.